Q2 2017: Apple: Operating Margins Dip to 2009 Levels

Apple reported its calendar Q2 2017 (Apr-Jun) results and on the 10th Year Anniversary of iPhone, the overall results followed the typical cyclic iPhone trends.

1. Operating Margins Dip to 2009 Levels

Lower iPhone ASP, Currency FX headwinds and mix shift to older iPhones as longer tail laggards upgrade during this period.

2.iPhone Cyclic Dip Continues

Apple has a serious problem or rather a lost opportunity to ignore the non-launch quarters to let competition grow especially in potential growth markets. Something has to change – perhaps switching to dual launch cycle to improve region/portfolio mix.

3.Services Remain the bright spot

As Apple after selling more than 1.1 billion iPhones, more than 270 million iPads with a device installed base of more than a billion devices mostly with premium users. Apple already has 185 million users subscribing to Apple services which is a quite healthy attach rate to generate billions of dollars in services revenues – Apps, Music, Pay, iCloud and more. Apple is now on an annual run-rate of $25 Billion+ services revenues

4.China Remains the Problem Child

Apple’s position in China continues to slip (see here) as its revenues also dwindle, which was one of its biggest markets alongside the USA. The key reasons being:

  • iPhone fatigue
  • Loss of share in $300-$500 priceband as older iPhones fail to compete with affordable premium Chinese flagships
  • Lack of stickiness with less control over digital services as most of the users spend their digital lives inside WeChat that actually has better experience on Android

5. Samsung Surpasses Apple in Operating Profits for First Time

On the 10th iPhone Anniversary quarter, Samsung actually for the first time surpassed Apple in terms of generating operating profits. Thanks to Apple and Chinese brands as well as tremendous job by Samsung Semiconductor (Memory) and Samsung Display units which have driven greater demand for its differentiated and high-scale offerings. While this could be a temporary pass, it’s nevertheless a remarkable feat for Samsung.